Mr DANBY (Melbourne Ports) (12:56): One of China's foreign policy think tanks, the China Institutes of Contemporary International Relations, has suggested that Australia is seriously beginning to lag behind rival nations in its engagement with China. CICIR President Cui Liru has said that Australia's strategic relationship with China has failed to reflect the dramatic developments in the two countries' social and economic relationship. He said:

This implies that the longstanding model of the relationship, of which economic complementarity has formed the cornerstone, no longer suffices.

He also said:

The second disjuncture is that between our current strategic bilateral relationship and the fast-paced structural transformations in the Asia Pacific.

The CICIR has said:

China's re-emergence is the greatest single factor influencing the course of political changes in the region.

A very interesting interview appeared on Lateline with John Lee, one of Australia's leading experts on China, who, in response to a question from Emma Alberici about this Chinese think tank's claims, made the following very interesting points, particularly on Australia's economic relations with China:

… if you look at the Australia/Chinese relationship in 2009/10, that reached the lowest point that it had been probably for 10 years. But the Chinese buy commodities from Australia not because they like our policies, but because they have to.

Our commodities tend to be around a third cheaper than other competitors - for example, Brazil - because of our location.

Obviously transport costs to China increase the price of iron ore and coal from places other than Australia. Mr Lee continued:

The Chinese simply have no choice. I mean, getting access to raw materials is fundamental to economic growth. They cannot jeopardise that for domestic reasons.

So, it's very aggressive talk, but there's not much they can actually do.

He continued by explaining the foolishness of suggesting that we should act as some kind of broker between America and China, of pretending that we are not really in the American camp, that we can fudge that. He said:

Everyone agrees that the alliance with the Americans is the bedrock of Australian security …

… it's just unthinkable for the Chinese would view us as an honest broker in this kind of situation when security competition is actually deepening between America and China. So, if we try to play this role as honest broker, we will just be rebuffed by Beijing and annoy Washington, and won't achieve much in the process.

In response to Emma Alberici, he also pointed to the fact that Chinese military spending is increasing at an exponential rate, with compound interest of about 15 per cent per year for the last 15 years, last year exceeding $100 billion. People point to the fact that Chinese defence spending is less than the United States, but, of course, in China you can buy a lot more with $100 billion than you can in the United States. Mr Lee said further that the Chinese are actually spending about double what the official figure is. The second thing that concerns all of us, including Australia, is that they are not very transparent about what they are spending money on and why they are spending that amount of money.

It is very interesting to look at the Lowy Institute's recent review of very much improved relations between Australia and Indonesia. One of the highlighted factors emerging from the Lowy Institute's review of Indonesian attitudes to Australia is that Indonesia sees important reasons for closer economic relations between our countries and that the public polling figures in Indonesia reflect the same concerns about China that the Australian public have. I encourage Australian business to look increasingly to Indonesia, which is now going to have its second year of more than six per cent economic growth. There was a very interesting segment on Business Lateline last night about Australia being very much underdone in Indonesia in terms of business investment, especially foreign direct investment in Indonesia. If Australia looks at the burgeoning middle class and economic growth in Indonesia, that is something Australian business should naturally focus on to extract benefits for both themselves and Australia from our great neighbour Indonesia.